Iran Prioritizes Regional Gas Market Over Europe

Iran is increasing its focus on natural gas export to neighboring states as well as India, shifting away from costly and potentially complicated plans to supply the fossil fuel to the European Union.

"Gas export to Europe is not a priority. Neighboring states and India are now the main targets for Iranian gas," Amirhossein Zamaninia, deputy for international affairs at the Oil Ministry, was quoted as saying by IRNA on Friday.

"Europe is not a suitable option for gas exports, because the continent is already oversupplied. Holding one of the world's largest gas reserves, Iran always keeps an eye on Europe, but the market is not a priority in the short run," he said.

Russia is a major rival, as it has dominated the European energy market. Russia's state-owned gas monopoly Gazprom shipped a record amount of gas to the European Union last year and accounts for about 34% of the trading bloc’s use of the fuel, Bloomberg reported.

The world's largest oil producer looks set to tighten its grip on Europe's gas market, as it plans to launch Nord Stream 2 pipeline project before the end of 2019. Similar to the Nord Stream pipeline, the new gas pipeline project will consist of two parallel lines with a joint capacity of 55 billion cubic meters annually flowing directly to the German market and from there it will be further distributed in the EU.

Zamaninia said the lifting of international economic sanctions last year presented Iran with an opportunity to raise natural gas production and expand its footprint in regional energy markets.

"Upon the launch of new phases of the South Pars Gas Field by the end of the fiscal year (March 2018), gas output will exceed 1 billion cubic meters per day. Some of the new capacity will be exported," he said.

--- Gas Production, Export

Iran pumps more than 820 million cubic meters of gas from all its fields, but much of the output is consumed at home for heating purposes or as feedstock for power generation as well as injection into oil wells to increase the recovery factor.

Turkey is the biggest customer of Iranian gas, taking in up to 30 million cubic meters a day via pipeline. Iraq is now the second-largest buyer after exports to the Arab country began at a rate of 7 million cubic meters a day last month. Officials say the volumes will rise to 35 mcm/d. Iran also sells small amounts to Azerbaijan and Armenia.

According to Zamaninia, gas export capacity is scheduled to reach 80 billion cubic meters annually by 2022, some 50 bcm of which should go to regional markets.

"Once we reach that capacity, there will be room to supply 30 bcm of gas to Europe. We have a long-term prospect for claiming a stake in the European energy market," he said.

India, one of the largest importers of Iranian crude oil, can also emerge as a top gas customer. Exports to India can take place in two ways: via a subsea pipeline that is projected to stretch for 3,000 kilometers and cost $5 billion, or via ships in the form of liquefied natural gas.

India recently made an $11 billion offer to develop Farzad-B, a giant Iranian gas deposit in the Persian Gulf. As part of the project, Indians have proposed to develop LNG loading terminals to ship Farzad-B gas back to India.